At 11:15 a.m. on July 29, Irish
property developer Michael O’Flynn realized that Blackstone
Group LP (BX) was trying to gain control of his real estate empire,
which includes the country’s tallest residential tower.

Ten weeks earlier, the private equity firm had bought 1.8
billion euros ($2.4 billion) of loans to O’Flynn’s companies and
the developer personally. Coming out of a meeting, he learned
Blackstone was demanding the immediate repayment of 16 million
euros of personal loans secured on his shareholdings — even
though he wasn’t in default. By the end of the day he had lost
control of the business he’d spent more than 30 years building.

“I was shocked that they’d made this demand,” O’Flynn,
57, said in an interview. “It took time to understand the
gravity of it because I’ve never been served with a demand in my
36 years of business. I was very recently transferred to
Blackstone and I was doing my damnedest to work with them.”

O’Flynn was out, but not for long. Last week, an Irish
judge restored him to the top of his company, saying Blackstone
hadn’t acted in the “utmost good faith” or given the developer
enough time to repay the money.

The judgment is a setback for Blackstone, manager of the
largest fund dedicated to buying real estate in Europe, as it
tries to buy up distressed real estate assets in Ireland with
the economy starting to rebound from its property crash of 2008.

Judge Mary Irvine ruled Aug. 13 that Blackstone failed to
disclose relevant information when it sought to have officials
appointed by a court to oversee O’Flynn’s companies in July.
That “breached the obligation of utmost good faith,” she said.

‘Appropriate’ Actions

After the court defeat, Carbon Finance, the Blackstone-owned company that bought O’Flynn’s loans for more than 1
billion euros, said in a statement its actions were
“appropriate and necessary.” The company declined to comment
beyond the statement while officials at Blackstone in London
declined to comment.

The ruling may only be a temporary reprieve for O’Flynn
until a full hearing over Blackstone’s efforts to gain control
of the company in October. Irvine said while Blackstone may have
the “better side of the argument” in its view that it was
enforcing an accord O’Flynn had entered with “open eyes,” the
company’s approach had raised enough questions to warrant a full
airing of the case.

The case is part of the legacy of Ireland’s economic
collapse, which stemmed from a real estate bubble that burst in
2008. Property developers had borrowed billions of euros from
the nation’s banks as they sought to cash in on the boom. After
the collapse, home prices halved, the government took over the
domestic banking system, and the state needed a three-year
international bailout in 2010.

Elysian, Cork

O’Flynn’s story begins in Cork, a city of about 120,000
people in the south of Ireland. From there, O’Flynn forged his
real estate business, culminating in the construction of the
Elysian in Cork at the height of the nation’s property bubble.

Close to the River Lee, the 17-story tower contained 211
apartments, selling for as much as much as 1.8 million euros
each. Trouble was, construction finished just as Ireland’s
property market crashed, in 2008.

Two years later, O’Flynn’s loans were transferred to the
country’s bad bank, the National Asset Management Agency, set up
to purge the financial system of commercial real estate loans.

Enter Blackstone. In May, it agreed to buy the O’Flynn
loans through Carbon Finance.

Burlington Hotel

Spearheaded by Blackstone, overseas investors have poured
into Ireland since the crash, picking up real estate and loans
to developers at a fraction of their face value. Blackstone owns
the Burlington Hotel, a landmark, 501-bedroom hotel in the south
of Dublin, and this year bought three office buildings in the
capital from NAMA. Prime Dublin office rents rose 15 percent in
the second quarter from the previous three months, according to
CBRE Group Inc., a real estate services adviser.

Last month, Blackstone delivered a letter to O’Flynn’s home
in the Cork village of Ovens, alerting him to the demand for
payment of personal loans, according to Irvine’s ruling.

In court filings on July 29, Blackstone said that it wanted
to seize shares in O’Flynn’s parent company he had pledged as
security for personal loans if he wasn’t in a position to meet
their demands. The loans were payable on demand, Blackstone said
in the filings. As O’Flynn was unable to repay the loans
forthwith, Blackstone was able to topple him, and by 1:05 p.m.
that day, court-appointed officials had removed O’Flynn as a
director of the wider group.

August Hearing

O’Flynn would still be out of a job if not for Irvine’s
ruling. The judge returned to Dublin’s court complex, which was
otherwise deserted during the August summer break, to deliver
her decision.

The press and public galleries, including Bill Cullen, who
hosted “The Apprentice” television show in Ireland as the
nation’s version of Donald Trump, were full. In 2008,
contestants on the show were invited to create a 45-second
commercial for the Elysian, with the winner chosen by O’Flynn.

O’Flynn visibly relaxed during Irvine’s hour-long reading
of the judgment as it became clear that he had defeated
Blackstone.

Irvine concluded that Blackstone’s demand for instant
repayment was designed to gain control of the entire company,
because the loans were linked.

“When it issued the demand letters, it was not setting out
to recover the money,” she said. “The last thing it wanted was
payment because that would have scuttled its plans.”

Year-end Payment

In its statement, Blackstone signaled it’s not giving up.
At the end of the year, 235 million euros are scheduled to be
repaid to Carbon Finance, which maintained his companies are
insolvent.

The company “will continue to safeguard its position as a
significant creditor of the O’Flynn Group and to do everything
to protect the assets of the group and its creditors,” Carbon
Finance said in its statement.

O’Flynn, for his part, simply says he’s ready to move on.

“We’re all big boys and we just want to move on with doing
what we do best,” O’Flynn said. “That’s making a return.”